Walters v. AAA Waterproofing, Inc.

• Decision Date: 01 March 2004
• Docket Number: No. 52294-9-I.,52294-9-I.
• Citation: 120 Wash.App. 354,85 P.3d 389
• Court: Washington Court of Appeals
• Parties: Derek WALTERS, Appellant, v. A.A.A. WATERPROOFING, INC., Respondent.

85 P.3d 389

120 Wash.App. 354

Derek WALTERS, Appellant, v. A.A.A. WATERPROOFING, INC., Respondent.

No. 52294-9-I.

Court of Appeals of Washington, Division 1.

March 1, 2004.

Roblin John Williamson, Attorney at Law, Seattle, WA, for Appellant.

Jeffrey P. Fairchild, Attorney at Law, Bellingham, WA, for Respondent.

BAKER, J.

Derek Walters agreed to arbitrate employment disputes when he signed his employment agreement with A.A.A. Waterproofing, Inc. Later, Walters sued A.A.A. for overtime pay, and A.A.A. responded by moving to stay the proceeding pending mandatory arbitration. A.A.A.'s motion was granted. To appeal the stay, Walters moved for and was granted a final judgment and dismissal. He now appeals on several grounds. We reject his arguments that the arbitration clause lacks mutuality, is unconscionable, ambiguous, violates public policy, and does not involve commerce as defined in the Federal Arbitration Act (FAA),¹ and affirm.

The challenged arbitration clause requires arbitration of all disputes related to the employment agreement except those related to confidentiality and noncompetition. In pertinent part the arbitration clause reads:

Any dispute (except a dispute relating to a breach of Sections 6 or 11 hereof) shall be submitted by any party hereto to arbitration.

In Section 1, the agreement states that "Employer hereby employs Employee as the Division Manager for its Washington Facility and Employee shall ... actively participate in the expansion of Employer's business in the Northwestern United States through growth of its existing business into new geographic markets...."

Walters claimed that he worked in excess of 40 hours per week without receipt of overtime pay, and sued A.A.A. for damages and penalties in King County Superior Court. In response, A.A.A. successfully moved to stay the proceeding pending mandatory arbitration.

We review questions of arbitrability de novo.²

The crafters of the Federal Arbitration Act designed it to "ensure judicial enforcement of privately made agreements to arbitrate."³ Section 2 of the FAA "create[s] a body of federal substantive law of arbitrability.... [that] is enforceable in both state and federal courts."⁴ Moreover, section 2 "embodies a clear federal policy of requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable `upon such grounds as exist at law or in equity for the revocation of any contract.'"⁵

Walters argues that we should not apply the FAA because A.A.A. did not show that the employment agreement is a contract evidencing interstate commerce. Walters' argument raises two issues. First, does A.A.A. have a prima facie burden to establish that the FAA applies to the employment agreement? Second, if A.A.A. has a prima facie burden, did it meet that burden?

Washington law does not guide us in deciding whether A.A.A. had a prima facie burden, so we look to other authority. In Harrison v. Nissan Motor Corp. in U.S.A.,⁶ the Third Circuit Court of Appeals, in dicta, commented that "as a threshold matter that, for the FAA to apply, the party seeking to compel FAA arbitration must show the existence of a written agreement that contains an arbitration clause and affects interstate commerce."⁷ Courts in at least two states, Alabama and Texas, have held that the party seeking to compel arbitration must establish its right to arbitration by proving that the contract evidences a transaction affecting interstate commerce.⁸ We are persuaded that the party moving to compel arbitration must make a threshold showing that a written agreement to arbitrate exists and that the contract at issue involves interstate commerce.⁹ We further conclude that a sufficient showing is made when the terms of the contract evidence an undertaking involving interstate commerce. Here, the agreement requires that Walters, as the "Division Manager for [A.A.A.'s] Washington Facility[,] ... actively participate in the expansion of [A.A.A.'s] business in the Northwestern United States through growth of its existing business into new geographic markets...." On its face, the employment agreement requires Walters to participate in A.A.A.'s expansion into northwest states, not merely within Washington, and thus, evidences a transaction that substantially affects interstate commerce.

Next, Walters argues that the arbitration clause is invalid because the arbitration provision suffers from a lack of mutuality. But where the contract as a whole is otherwise supported by consideration on both sides, most courts have not ruled the arbitration clause invalid for lack of mutuality, even when the clause compelled one party to submit all disputes to arbitration but allowed the other party the choice of pursuing arbitration or litigation in the courts.¹⁰

Walters' argument assumes the provision will be analyzed separately from the rest of the contract. He relies on an Arkansas case that found an arbitration clause unenforceable due to lack of mutuality.¹¹ Even accepting his assumption that the arbitration clause should be analyzed separately from the rest of the contract and accepting the Arkansas case law as persuasive, we still reject the argument.

In Money Place, LLC v. Barnes,¹² the Arkansas Supreme Court found that the money lender had the complete choice of arbitration or court while the borrower was forced into arbitration and therefore, "[b]ecause this arbitration agreement lacks the element of mutuality, it is not a valid and enforceable agreement."¹³

The arbitration clause in Walters' employment agreement states that "[a]ny dispute (except a dispute relating to a breach of Sections 6 or 11 hereof) shall be submitted by any party hereto to arbitration." Section 6 prohibits Walters from revealing confidential information without prior written consent from A.A.A. Section 11 is a covenant not to compete. Walters argues that A.A.A. reserves the right to use the courts for the two parts of the employment agreement that are important to it, while requiring Walters to submit all of his potential disputes to arbitration.

A.A.A. and Walters must each arbitrate all claims related to the employment agreement except those related to confidentiality or noncompetition. A.A.A. does not have complete choice and Walters is not forced into arbitration exclusively. The arbitration provision does not lack mutuality.

Next, Walters argues that prohibitive costs render the arbitral forum inaccessible. In Mendez v. Palm Harbor Homes, Inc.,¹⁴ the court held that "an arbitration agreement may be stricken when the party opposing arbitration reasonably shows in law or equity that prohibitive costs are likely to render the arbitral forum inaccessible."¹⁵ Mendez provided evidence that made the court "reasonably sure ... that [he] would have been required to spend up front well over $2,000... to resolve a potential $1,500 dispute."¹⁶ The court commented that "[a]voiding the public court system to save time and money is a laudable societal goal. But avoiding the... system in a way that effectively denies citizens access to resolving everyday societal disputes is unconscionable."¹⁷

The Mendez court considered arbitration in the context of chapter 7.04 RCW, not under the FAA.¹⁸ It is not clear that a similar analysis would apply to arbitration agreements governed under the FAA, but in any event, Walters has not shown that the costs of arbitrating his claim are prohibitive.¹⁹ His argument thus fails.

Next, Walters argues that the arbitration agreement is unconscionable. Washington courts recognize two kinds of unconscionability— substantive and procedural.²⁰ Substantive unconscionability involves "those cases where a clause or term in the contract is alleged to be one-sided or overly harsh."²¹ Procedural unconscionability relates to "impropriety during the process of forming a contract."²²

Walters argues both kinds. He claims substantive unconscionability because the arbitration clause requires him to waive all rights with respect to dispute resolution, while A.A.A. reserves its right to pursue certain remedies in court, and by arguing that the arbitration is cost prohibitive. He also claims procedural unconscionability by arguing that the employment contract is a contract of adhesion.

His claim for substantive unconscionability fails for the same reasons his lack of mutuality claim and his cost prohibitive defense fail. Although the arbitration agreement reserves the right to take to court disputes that are more likely to be raised by A.A.A., either party may litigate those disputes. And although the agreement compels the parties to take other disputes to arbitration, both parties are so compelled. With regard to the cost defense, Walters provides no evidence of prohibitive cost.

Walters' claim for procedural unconscionability fails as well. A contract of adhesion is not necessarily unconscionable.²³ In Tjart v. Smith Barney, Inc.,²⁴ we held that an arbitration provision was not unconscionable even though it was part of a contract of adhesion.²⁵ We noted that "[m]ost courts have rejected plaintiffs' arguments that predispute mandatory arbitration clauses are unconscionable contracts of adhesion because of mere inequality of bargaining power between employer and employee."²⁶ We further noted that "[w]hile the issue of unconscionability ... is a question of law for the court, the decision is one based on the factual circumstances surrounding the transaction in question."²⁷ Beyond his bare assertion that the contract is a contract of adhesion, Walters presents no facts to support a finding of unconscionability.

Next, Walters argues that he did not waive his right to litigate a claim for overtime because the language in the arbitration clause was not sufficiently specific and unambiguous.

Similarly, Tjart argued that his arbitration provisions were confusing and ambiguous, and could not be read to require arbitration.²⁸ The...